Are Expectations Helping To Raise The Price Of Lithium?

Expectation of future price is a shift factor for demand. When buyers expect prices to go up significantly in the near future, demand today increases. That will cause prices today to rise. That is happening right now (although other factors are at work, too).

See Lithium Prices Soar, Turbocharged By Electric-Vehicle Demand and Scant Supply: The lithium price surge is setting off a scramble for supply and fueling fears about long-term battery metals shortages by Amrith Ramkumar of The WSJ. Excerpts:

"Lithium prices are rising at their fastest pace in years, setting off a race to secure supplies and fueling worries about long-term shortages of a vital ingredient in the rechargeable batteries that power everything from electric vehicles to smartphones. 

An index of lithium prices from research firm and price provider Benchmark Mineral Intelligence doubled between May and November and is up some 240% for the year. The index is at its highest level in data going back five years. 

Driving the run up are bets on continued scarcity. Demand is multiplying as Tesla Inc. and other auto makers ramp up sales of electric vehicles. Supply, meanwhile, has been constrained by limited investment in new projects following a recent bear market and supply-chain bottlenecks. Producers often face environmental opposition and cumbersome permitting processes when trying to extract the silvery-white metal."

"Most lithium comes from countries such as Australia and Chile. There are two main sources: a salty brine that is pumped out of the ground and spodumene, a mineral contained in hard rocks. After extraction, chemical processes are used to make battery-grade lithium compounds."

"Environmental opposition and permitting delays also are obstacles for companies, including Lithium Americas in Nevada and Piedmont Lithium Inc., a North Carolina-based producer."

"The challenge for lithium producers is that it takes many years and heavy investment to get projects off the ground, creating mismatches between quickly growing supply and demand. Prices soared in 2017 and 2018, only to fall rapidly after companies ramped up output.

Some analysts expect a similar pattern to play out this time, but only if producers increase capacity and sentiment cools off. 

“There’s enough lithium out there. The issue is the investment required to get there,” said Eric Norris, president of Albemarle’s lithium unit, on the company’s earnings call last month."

"Some analysts see the flood of money piling into the sector eventually pushing supply up and cooling the rally. Citigroup analysts project demand will outpace supply this year and next year before production tops consumption through 2025. 

But red-hot sentiment could still fuel price gains well into next year, some analysts say. 

“It’s more about the perceptions that market players have, not the real shortages of the material,” said Lukasz Bednarski, principal research analyst at IHS Markit focused on lithium. He expects a price correction at some point next year."